VMware's weakness? It didn't beat every target for every product in Q3

But it did beat the street as vSphere sales held, new products grew, cloud strategy worked, desktops drooped a bit

By Simon Sharwood,
27 Oct 2016

If VMware is a legacy software company soon to be killed by cloud, you may want to find more more legacy companies in which to invest*, because Virtzilla has just posted another another quarter in which its core virtualisation products helped it to beat guidance for earnings and revenue.

The headline numbers are revenue for Q3 2016 of US$1.78 billion, up six per cent compared to 2015 and $20m ahead of expectations. Earnings per share of 1.14 beat expectations by four cents. Licence revenue was up, unearned revenue was up and there's $8.25 billion of cash and short term investments in the kitty. Net income was up year over year by a handsome 25 per cent.

The company's big bets continue to pay off, with the exception of the desktop productivity business. CEO Pat Gelsinger told analysts on an earning call that “execution problems” and difficulties integrating the VMware and AirWatch sales teams had seen that business go backwards a little in the quarter, after problems in Q2.

He leavened that news by saying delayed deals that didn't drop in Q3 have already started to clear in Q4, which it's hoped and/or expected will be the quarter in which the desktop business steadies.

Others products are doing just fine. vSphere and management products sales beat targets again, a result attributed to big customers re-committing to VMware's core products so they can go all-in on the company's hybrid cloud plans. Gelsinger said VMware isn't yet ready to rescind its belief that vSphere should be considered to have entered long-term decline, but the signs are good that VMware's flagship has plenty of life in it yet.

Service providers are a sweet spot for vSphere and the Cloud Foundation of which it is now a component: they're buying plenty and doing so on fat margins (An aside: El Reg's virtualisation desk has recently chatted to some vCloud Air Network members who say VMware's big cloud partners don't bother them at all.

Instead, deals with the likes of IBM and Amazon Web Services promote the concept of hybrid clouds built on vSphere, and folks who don't deal with IBM have no desire to start doing so).

Having said that, the company's cloud partnership with IBM has already won “nearly 1,000” customers. That partnership was formed in February 2016, so appears to have good momentum. Other new initiatives are doing well: software-as-a-service revenue is now eight per cent of total, while VSAN and NSX continue to grow rapidly (now at 5,500 and 1,900 customers respectively). Even vCloud Air got a mention in the roll-call of business units growing well.

Gelsinger therefore said this quarter shows “clear validation of the platform” and it is hard to argue with that.

The company also announced a re-org with a new “Products and Cloud Services organization focused on extending leadership across compute, storage, networking, management and business mobility” the headline item. This new organisation gets two chief operating officers, Raghu Raghuram and Rajiv Ramaswami.

Sanjay Poonen has an “expanded role as chief operating officer, customer operations responsible for Worldwide Sales and Services, Channels, Marketing.” That changes means Sumit Dhawan takes over as general manager and senior veep for End-User Computing, freeing Poonen from that responsibility.

There's also a new gig for Jeff Jennings, now veep and GM of the Networking and Security business unit because Ramaswami has his COO suite to occupy. Jennings will be busy growing NSX and, The Register believes, plotting a launch for the Goldilocks security suite.

VMware shares are up about three per cent at the time of writing. ®

*That's a rhetorical flourish, not investment advice. Use a pro for that, people.